Guarding Against Risk with Vendor Agreements

Any hiccup involving life sciences contractors and vendors can have major reputational, regulatory, and legal repercussions — and outright fraud and theft do sometimes happen. How can life sciences companies mitigate these concerns and even protect themselves?

BrownRudnick partner Merri Moken and consulting attorney Mark Paxton recently visited the virtual Redica Systems studios to help us understand where life sciences firms can start.

With nearly two decades of experience, Merri Moken works in BrownRudnick’s Intellectual Property Litigation Practice Group, with a focus on patent, trademark, and commercial litigation. Mark Paxton works in the firm’s Corporate Practice Group, concentrating on FDA regulatory matters, and previously worked as the FDA sponsor representative for the surgeon general of the U.S. Army.

“One of my sweet spots is excipients, the ethylene glycol stuff and its related chemical entities,” says Paxton, referring to dangerous substitutions that have plagued the excipient supply chain over the past 20 years or so.

“How is it possible that these things are still arising today and getting into international commerce? A big part of this is that you weren’t doing what you’re supposed to do in these particular instances,” Paxton says.

He points to two main types of agreements that can protect participants — and help prevent mistakes and fraud: quality agreements and transfers of sponsor regulatory obligations. 

“Of course, your contractual provisions are not guarantees that these things are not going to happen, but what they do provide is recourse,” says Moken. “They provide remedy so that if and when there is a breach, if and when you need to see what’s going on on the ground and get access to documents and things of that nature, do site inspections and other types of auditing … that you have the right to do that.”

Quality Agreements

“A quality agreement is not really about vendor management,” explains Paxton. “It’s about setting expectations [between] two quality heads, one that may be a vendor, and the other one a customer.”

He prefers the quality agreement responsibility matrix, and says it’s the FDA’s preferred method, too. Familiar throughout most of the life sciences industry, the matrix specifies cGMP requirements from 21 CFR Part 210 (manufacturing, facilities, and controls), Part 211 (labeling, production processes, equipment management, and personnel requirements for finished drug products), or Part 820 (design, manufacture, packaging, labeling, storage, installation, and servicing of finished medical devices).

Figure 1: An example of a typical quality agreement responsibility matrix from Paxton’s and Moken’s presentation.

“The way to do this,” says Paxton, is to ”take all this language where we’re transferring obligations of GMP manufacturing, issues, or quality-related matters associated with the production of those products — whether it’s API, excipients, or finished dosage form — whoever the vendor is, put it into a template like that, [and] stick it in an appendix.”

Ensure that the agreement is signed by both quality heads to specify that they are responsible for implementation, he adds.

Transfers of Regulatory Obligations

“Whether you’re working with a [contract research organization], doing it yourself, hiring monitors that are contracts — whatever the case may be,” Paxton says, “you want to have a transfer of regulatory obligation that should be part of an appendix.”

“21 CFR 312 explicitly makes clear that a sponsor can transfer all or any part of the sponsor obligations in 312,” he adds. “However, if you transfer only part, you have to specify exactly which parts and who has responsibility.”

Figure 2: An example of a typical transfer of regulatory obligations from Paxton’s and Moken’s presentation.

Important Considerations for All Vendor Agreements

For either of these types of vendor agreements, there are “specific contractual provisions that you should always be keeping in mind when negotiating,” Moken says.

But keep their limitations in mind. They can help reduce problems, but cannot keep them from happening entirely.

Moken’s helpful legal advice on vendor agreements fits into two broad categories:

• Vendor reporting requirements
  • Timely reporting of certain events — consider requiring notification of any regulatory action, including inspection outcomes, 483 issuance and responses, OAIs, etc.
  • Breach of contract and implications of a breach — it’s important to specify events that constitute a breach, especially those that affect production and commercialization, such as supply shortages, equipment breakdowns, and the failure to properly report. When a breach occurs, the contract may specify fees and other obligations.
• Carefully crafted audit provisions
  • More frequent audits — consider triggering audits with particular events, such as a material breach of contract, inspection outcomes, or failure to report issues.
  • Specified audit details — define audits to include everything related to vendor obligations, such as on-site facility inspections, access to financial documents, batch records, and other relevant records.
  • Post-termination obligations and audit rights; Survival clauses — specify that a contractor must protect confidential information, and that they may not use a sponsor’s technology for their own benefit (such as selling the same product under another name), nor provide a similar service to a competitor. “You can specifically say in the agreement,” adds Moken, that “these provisions — such as an audit, confidentiality, non-use — they all survive the termination of the agreement indefinitely.”

What It All Means

Life sciences companies, and specifically pharmaceutical companies, should strengthen their supplier partner relationships with special attention on two types of agreements: robust quality agreements and transfers of sponsor regulatory obligations. Structured properly, these two documents can set clear expectations of each party’s cGMP responsibilities, their responsibilities to each other, and the results of a breach of contract.

In addition, sponsors should also exercise their own independent verification capabilities. This means performing their own robust audits, as well as conducting their own Quality and Regulatory Intelligence analysis.

With Quality and Regulatory Intelligence from Redica Systems, pharma sponsors can keep an eye on their vendors. Not only will you know when your vendor receives a 483 — or even a warning letter — you’ll know what the investigator found, which areas generated observations, and how serious those observations are.

Schedule your walk-through with Redica Systems today!